Only the ambitious need apply
(Cards International; 08/17/98)
Andrew Tobin, head of Logica's Card Technology Unit, examines the huge
opportunity awaiting the organisation which grasps the nettle of global smart
THE MOVEMENT to do business electronically across networks is gaining
momentum as more and more of the technologies needed are clicking into place.
While real-world commerce infrastructures have emerged over hundreds of
years, the infrastructure for electronic business is needed much more quickly.
Those organisations that seize the opportunity to develop and control key
points of the e-commerce infrastructure will not only gain power and influence
in electronic markets but also build the foundations for a highly profitable
Such organisations are becoming known as 'intermediaries' in the new value
chains made possible by the rise of electronic business. Potentially one of the
largest business opportunities is emerging in the smart cards sector, where
there is an urgent need for an organisation that can issue, manage and
coordinate smart cards and smart cards transactions.
If electronic business transactions are to succeed, customers, be they
individuals or organisations, need a portable, secure way of:
identifying themselves within a transaction;
storing the information needed to participate in known-relationship
accepting new information to enable them to carry out transactions with
previously unknown partners.
Multi-application smart cards, able to download new applications from the
Internet or in-store kiosks and to store personal information, provide a low-
cost and versatile solution. Yet their acceptance is dogged by a number of
business problems, most of which are directly related to the ownership of the
infrastructure for issuing smart cards, controlling the applications that can
be downloaded to them and handling the transactions that result.
At present, this ownership is fragmented. Banks issue cards, for example,
and own the associated cardholder relationship. In recent years, retailers have
joined the cards wars, issuing loyalty cards in a bid to put their brand in
customers' wallets. As a result, a consumer backlash is setting in against the
multiple pieces of plastic people have to carry around, and the fact that the
value they receive from such cards is limited.
Customers don't want to spend, say, #900 ($1,500) to gain enough points to
buy something they didn't want in the first place. In an increasingly self-
service, consumer-power culture, they want added value in terms of quality of
service and price, such as convenient access to their transactional information
and special offers that are personally relevant.
Obsession with the issues of branding and customer ownership is blocking the
development of a standard, nationwide, and eventually, global infrastructure to
support smart cards-based electronic business. Under the current scenario,
competitive considerations are holding back multi-application smart cards. It
is unlikely that a distributor of such cards, such as Visa, would be happy if
they were also loaded with an application from MasterCard. Nor is it possible
to dynamically reprint the cards' surfaces with the branding for a new
But the problem of cards ownership could be done away with at a stroke if
smart cards were issued by an independent organisation. This new intermediary
would sell cards to customers who would then load them with the applications of
their choice - and the brand-owner's real-estate would merely move from
customers' wallets onto their cards.
Applications would be available online from a central repository
administered by the intermediary. A multitude of different retailers, travel
companies, service providers and even public administrations, from the NHS and
DSS to the local library or sports centre would provide smart cards
applications, or buy them off the shelf from the intermediary.
In a recent survey of 2,000 adults carried out by the UK government's
Central IT Unit, 80 percent would be willing to use touch-screen technology to
interact with government, an indication that electronic business would be
widely accepted by the population at large, provided easy-to-use, convenient
infrastructure is in place.
Instead of having both Sainsbury's and Tesco's loyalty cards in their
pockets, cardholders would download each company's loyalty application to sit
side by side on their smart cards. Although they would not have their branding
on the surface of the cards, the retailers would have at their disposal new,
and potentially far more powerful, loyalty opportunities made possible by
online links with the independent cards.
Thus, when a customer accessed each company's application - whether from a
PC at work or home, pay-as-you-go Internet kiosk, or in-store intranet facility
- he would be offered services that enhanced his shopping experience, such as
the ability to check the availability of goods, or to order them online, and be
targeted with offers that might change daily, or even hourly, customised to his
The retailer's brand would also appear on the display of the point-of-sale
(POS) terminal when customers used their smart cards to pay in that store. The
intelligent POS terminals might even display and print out special offers on
the spot, or customers might put their cards through a reader on entering the
store and receive customised shopping lists and personal discounts.
The new intermediary would do more than merely provide an independent source
of multi-application smart cards. It might act as a trusted third party,
carrying out all the identity checks that will result in a cards identity being
trusted in an electronic business transaction. It would be responsible for the
security processes involved in replicating information onto new cards when old
cards have been lost, and for disabling or deleting specific cards applications
when the application owner (such as a bank or retailer) wished to revoke the
services it provided to a particular customer.
In addition, it might provide many other smart cards-related infrastructure
services, such as the provision of advanced POS terminals and in-store kiosks
that will support smart cards-based transactions, as well as the transaction
Terminals that can use smart cards need to be distributed far more widely to
retailers than they are today, and an intermediary which distributed cards and
owned the application repository would be in a good position to rent, sell or
lease advanced POS terminals, much as Eftpos New Zealand does today.
Such thin-client POS terminals would hold applets that control interaction
with the applications on the card. If a retailer wanted to accept a new type of
card, it would download the relevant applet from a central server, which is
also likely to be maintained by the smart cards intermediary.
Smart cards-reading terminals are not confined to fixed locations such as
point-of-sale, desk or kiosk - mobile telephones, pagers and personal digital
assistants will enable a new generation of mobile, cards-based transactions.
The intermediary would also provide the first point of contact for
cardholders wishing to gain a complete view of the information on their smart
cards. For example, they might wish to look at their number of frequent flyer
points and check the status of their electricity and telephone accounts at the
same time. The intermediary would provide the links through to the sources of
the relevant transactions, held within the airline/electricity/telephone
company's databases. Alternatively, it would acquire all the smart cards-based
transactions directly within its own database and send updates to the
retailers' systems at agreed intervals. Such third-party handling of
transactions is already commonplace - for example, the Link ATM network in the
Organisations such as Link and Eftpos New Zealand demonstrate that there is
already a business case for their activities, which can be transposed to the
smart cards intermediary's environment.
There are other precedents for generating revenue from further elements of
its business. For example, the intermediary might take a percentage of each
card sale, and/or charge per transaction for handling cards transactions. It
might charge for the development of applications to go on cards and their
maintenance in its application repository, as well as for security services,
such as 'hot cards' notification (if cards are lost) and 'hot list' management.
It might collect click-through advertising revenue from links to companies on
its Web site. It might even provide pay-as-you-go Internet services.
The new business model of smart cards intermediaries is attractive because
it solves most of the problems besetting the market today. It addresses key
infrastructure issues such as cards distribution and availability, and
compatibility between different cards types and POS terminals. From the
suppliers' point of view, it creates new branding and marketing opportunities
and relieves them of some of the thorny security issues involved in electronic
business such as trusted identity and hot cards management.
It meets consumer needs by putting choice firmly into customers' pockets and
removing the confusion generated by many different organisations claiming to
'own' them. It provides cardholders with unparalleled convenience in all
aspects of their lives, and not simply in banking and shopping applications.
Electronic business is rapidly breaking down the barriers between market
channels for goods and services, enabling their acquisition from a variety of
sources. In the future, cardholders may buy their car tax disk at Halfords when
they pop in for the antifreeze, and register a child's birth at Mothercare
while they pick up their newborn's nappies. In these cases, secure smart cards
give the intermediary the ability to underwrite any security risks involved in
the provision of these services.
It is clear that the intermediary's offerings will have to be well marketed
and positioned to attract customers, both for its services and for multi-
application cards. Convenience for the latter customer segment will only become
a reality if the intermediary has a marketing proposition to encourage the
participation of retailers, banks, government institutions, telcos and others.
It will also need to assure these organisations of strict and applied
confidentiality where consumer transactions and applications development are
Such a marketing proposition may maximise the economies of scale
participating organisations can achieve, which will result in lower costs of
doing business, but the potential for new and more flexible brand visibility
and for direct target marketing will also prove attractive.
All that remains is to find the candidate willing to pick up this business
opportunity. A company already providing transaction routing and acquisition
facilities would be well placed to extend its services into the area of smart
cards support. Equally well placed would be a terminal supplier or an Internet
Other companies with large public networks, such as telecommunications or
utilities providers, will also have a head start. The ambitious and visionary
organisation that seizes the day will undoubtedly find itself at the hub of
electronic business in the next millennium.